Online Auctions — tax consequences

The eBay business has been booming! Many people are earning some extra cash by selling things online. There are even businesses designed to help you sell stuff on eBay or other online auction sites.

But the question is — how does this affect your taxes?

Well, as with most things, the answer is — it depends. According to the IRS, if your online auction is the internet equivalent of an occasional yard sale (I always called it a garage sale…is that a northern/southern thing?) then the sales do not have to be reported. A garage/yard/rummage/whatever sale is an occasional event where you are selling various items that you have used personally over the years. So, in this case, the gain (if you sold it for more than you paid for it) is not reportable, and the loss (if you sold it for less than you paid for it) is not deductible. Take a look at this video from the IRS for more on online auctions.

Now, however, if you are selling items as a business, then that changes things a bit. How do you know if it’s a business? If you are having recurring sales and/or if you are purchasing items with the intent to resell them for a profit, then that would indicate to the IRS that you have started an online auction business.

If you are operating as a business, then you are entitled to deduct business expenses. You are also required to report the sales as business income. Here is a great little video from the IRS about business income. How you report these taxes depends on how your business is set up and also what you are selling. If you are selling things that appreciate (go up in value) like art or antiques, then this may be a capital gain and not ordinary income. These two things are reported differently to the IRS. Also, if you are operating as a business, there are some deductions that you may not be aware of, like the home office deduction. There are very specific rules dealing with these deductions, so please make sure that you are getting some professional help to get all of the deductions that you are entitled to. As always, we are available — we help clients across the country with business and personal taxes as well as QuickBooks (and other accounting software) training.